About $1 billion worth of gift cards will go unused in 2014. The industry calls that lost value breakage” or “spillage” and it means big profits for them and lost money for you”
Americans love gift cards, but many of those pieces of plastic go partially or entirely unused. Some are lost or forgotten. Others simply are ignored once the balance drops to a few dollars or less.
A gift card’s unused value — known in industry parlance as “spillage” or “breakage” — long has meant big profits for the gift card issuers.
But the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 — better known as the Credit CARD Act — tightened rules on retailers, making it more difficult for stores to cancel unused cards or charge inactivity fees. That prevents retailers from quickly cashing in on breakage.
In addition, savvy consumers are catching on, and appear to be finding ways to avoid being “breakage.”
According to the most recent figures from CEB TowerGroup, about 1 percent of the total value of gift cards was predicted to go unused in 2013. That’s down from a high of 10 percent in 2007. Brian Riley, senior research director at CEB TowerGroup, says some of the reduction in breakage is a result of growing cardholder realization that “‘even though there’s only $2.12 on my gift card, I’ve got to find a way to use it.”
However, even with the decline in breakage, around $1 billion worth of gift cards will be lost to fees and expiration dates, or misplaced, shoved in a drawer or otherwise neglected this year, according to CEB TowerGroup. That’s a huge amount of money that consumers will not be able to use toward a new shirt, stuffed animal or bicycle.
Retailers love when people use gift cards because studies show that most customers spend more in the store than the card is worth. Breakage makes gift cards even more profitable: With CEB TowerGroup projecting that an estimated $127 billion in gift cards will be sold in 2014, even a small percentage of unused cards boost a company’s bottom line.
Those profits make it feasible for retailers to make some consumer-friendly moves, such as selling gift cards at a discount. However, most of the money goes toward other endeavors.
“Somebody like Wal-Mart may have a billion dollars (in unused gift cards) sitting there,” says Dan Horne, a gift card expert and associate professor of marketing at Providence College in Rhode Island. “Wal-Mart could go out and build 30 new superstores without borrowing a penny. They know those gift cards will come in eventually, but for now, they have the use of that money.”
7 ways to make sure you’re not ‘breakage’
The longer you let a card sit untapped, the less likely you are to use it. Here are eight ways to make sure your gift cards are not lost to breakage:
1. Corral your cards. Make sure you can quickly locate your cards by storing them all in the same place, says Jackie Kelley, a professional organizer and owner of Clearing House, a Bethesda, Maryland, business that provides professional organizing services.
If you have too many cards to tuck into your wallet, Kelley recommends stowing them in a durable plastic envelope. Or upgrade to a Card Cubby (about $24 at CardCubby.com), which includes alphabetized tabs and is tiny enough to keep in a purse.
2. Read the fine print. The CARD Act prohibits gift card inactivity fees for the first year, and requires that gift cards cannot expire within five years of when activated. State laws may extend additional gift card protections. That gives you a big, but not permanent, cushion of time to use the cards, so know what yours is.
3. Plan your shopping ahead of time. Set up your e-mail program to send you a monthly reminder to use your gift cards. Kelley also recommends mentally plotting your errands. “Think in terms of the week or month ahead,” she says. “When will you be near the store? What items do you need there? Is there a gift you need for someone else? You are more likely to use the card if you know what you want ahead of time and can get in and out quickly.”
4. Trade or sell your cards. If you get a card you know you will not use — a Hot Topic gift card, for instance, when you are more of an L.L.Bean type — use one of the many card-swapping and card-selling sites to get what you really want. Such sites include Cardpool.com, Swapagift.com and GiftCardRescue.com.
5. Give low-end cards as gifts. To make sure your gift card doesn’t languish in someone else’s wallet, consider purchasing cards at Walgreens and Wendy’s instead of Nordstrom and Saks. According to CEB TowerGroup, practical gift cards, such as those for fast-food chains and discount retailers, are used faster than cards to fine dining establishments and pricey department stores.
That is because with a Wendy’s and a Walgreens on practically every corner, such lower-end cards simply are more convenient to use. They also offer more value for your card. “If you give a Wal-Mart gift card to your mailman, there are plenty of things to use it on,” says Riley. By contrast, a $25 gift card to Brooks Brothers will not get the postal carrier more than a pair of socks, he says.
6. Rethink general-purpose gift cards. Gift cards from credit card companies can be used anywhere you can use a credit card. But these cards also come with drawbacks.
Use-anywhere cards, known as open-loop cards, are more likely to come with startup fees and monthly inactivity fees that chip away at your balance. Many of these gift cards also include a “valid through” or “good through” date stamped on the front. Your card’s underlying value will not expire after that date, but you will have to call customer service for a replacement card. And that raises the risk that you will simply toss the card — and your remaining balance.
7. Give again. Instead of letting that last two bucks on a card go to waste, use it to make a donation. Websites such as Charity Choice and Gift Card Giver stockpile cards and combine them into higher-value gift cards that are donated to the needy.
Gift Card Giver founder Jeff Shinabarger got the idea when he asked a group of acquaintances how many had unused gift cards sitting in their wallets. “They literally started pulling out gift cards from their wallets,” he says. “Everyone had one.”
Shinabarger offered to redistribute the unused cards to the needy, and a new nonprofit was born.
See related: Gift cards 2013: Reload, please, Millennials boosting retail ‘un-gift’ card sales